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The Underage Pragmatist

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The Modi government presented what had been widely pegged as the most important budget of its five year term on 1st February’17. Budget 2017 was considered to be extremely crucial for a number of reasons. One, because after nearly three years in office, the government has not been able to truly fulfil its poll promise of massive job creation and this budget was, perhaps, the last opportunity for the government before the next general election to make significant policy changes towards that direction; two, since the overall sentiment of the economy has been low because of the government’s surprise decision to ban high denomination currency notes, with both investment and consumption falling since the decision was taken and India’s economic forecast being downgraded by IMF, this budget was expected to be the government’s chance to lift up spirits and re-energise the economy with some path-breaking initiatives; and three, with the next round of state elections round the corner, the budget was expected to be politically appealing for the ruling party to pitch to the masses before going to polls.

After a perusal of the budget documents, one can safely say that the finance minister focused on achieving the third objective mentioned above and largely maintained the status quo on the other two while preparing the same.

The budget contains enough provisions for BJP’s political workers to boast about during the campaign trail in various state elections, especially in Uttar Pradesh. The party has been keen on propping up the anti-corruption image of the Prime Minister and the budget goes one step forward in doing just that. The policy of limiting cash donation to a political party to Rs. 2000, ostensibly aimed at cleaning up political funding, is one such illustration of the government trying to win over voters with a provision that can easily be evaded by political parties by simply limiting individual contribution to less than the mentioned amount. On the same lines, the policy of banning cash transactions above Rs. 3 Lakh would do little to halt the underground economy since businesses can easily evade scrutiny by simply issuing multiple bills of under Rs. 3 Lakh when undertaking a high value transaction. Even the proposed law on confiscating assets of loan absconders like Vijay Mallya and Lalit Modi is nothing but a sanctimonious attempt to remain on the good side of the public with respect to its promise of clean governance. Other provisions in the budget like cutting the rate of tax to half on income up to Rs. 5 Lakh and expanding the presumptive taxation scheme would provide much needed relief to the middle classes and maintain their political appeal for the next round of assembly elections later this year.

With respect to the post-demonetisation effects on the economy, I disagree with the notion that the government should have used the windfall gain to dole out freebies for Jan-Dhan account holders on the line of the Maternity Benefit Scheme wherein Rs. 6000 would be transferred directly to the bank accounts of eligible pregnant women. In my opinion, this would not achieve any discernible objective and would go against every principle held by this government under the leadership of PM Modi. One might say that the windfall received by post demonetisation allowed the government to double its lending target under the Mudra Yojna or perhaps, significantly increase allocation under various other existing schemes. That, was clearly a far more prudent and far-sighted step to have been taken by the government.

Notwithstanding the above, I would have liked to have seen a roadmap being presented directed at moving towards the Universal Basic Income (UBI) scheme as suggested by Dr. Arvind Subramanium, Chief Economic Advisor, in the Annual Economic Survey presented right before the budget. An action plan to rationalise redundant subsidies while moving towards a UBI scheme targeted at the most vulnerable sections of society is an idea worthy of merit that needs to be debated frequently going forward and possibly even explored in the coming future.

The real disappointment came from the macroeconomic provisions in the budget with the government choosing to stick to its variably successful mantra of incremental reforms and yet again, shying away from introducing any bold initiatives that would provide a fillip to the economy.

With regards to infusion of capital in public sector banks to solve the NPA problem, the government earmarked merely Rs. 10,000 crore for the current fiscal year. Although, the government has pledged more capital if need be, it might have been prudent to consider the idea recommended in the annual Economic Survey of a Public Sector Asset Rehabilitation Agency (PARA) or a ‘bad bank’ which would buy bad loans from state-run banks so that banks can be relieved of that problem and shift their focus on lending. PARA would then be responsible for maximising recoveries, now made simpler with the introduction of the bankruptcy code. Only such path breaking ideas can solve the twin balance sheet problem that India Inc. in currently facing and kick-start the investment cycle in the country, but, the status quoist instincts of the government haven’t allowed such proposals to pass through the planning stage.

The story is the same when it comes to other important economic issues like privatisation of public sector units (PSUs) and further liberalisation of the Foreign Direct Investment (FDI) regime.

In his budget speech, the Finance Minister declared that the government will move ahead with the listing of some railway PSUs like IRCTC, IRCON and IRFC. Although, this is a giant leap forward and might encourage greater investment in railways in the future, the comprehensive road-map with regards to privatisation of PSUs prepared by the Niti Aayog has quietly been put under the shelve so to not attract the ire of public sector workers. Even with regards to FDI liberalisation, the Finance Minister simply reiterated his commitment to the cause without making any concrete policy pledges. The decision to abolish the Foreign Investment Promotion Board (FIPB), hitherto the approving authority of the FDI proposals made by multinationals, can largely said to be redundant since 95% of the FDI coming into India is made through the automatic route.

Although there were some good proposals that were introduced in the budget, but they were few and far between. According infrastructure status to the low cost housing sector is one such proposal. This would lower borrowing costs for developers and would allow them undertake more projects, thereby achieving the ‘housing for all’ target set by the government. The reduction of the income rate from 30% to 25% for firms with turnover up to Rs. 50 crore would provide a major boost to start-ups and SMEs around the country, although an across the board tax cut would have been far more appreciated.

In conclusion, Budget 2017 was simply an extension of the government’s policies undertaken in the last two and a half years but fell desperately short of introducing any original gambit to reverse the fortunes of the country and bring about the much awaited ‘ache din’ to India. It remains to be seen whether the government would make course correction in the near future or face the wrath of the electorate in the next round of elections.

Recently, a report in the Times of India said that the central government is planning to initiate an all party discussion on synchronizing Lok Sabha elections with the respective state assembly elections by 2019. If indeed implemented, this would be the first step towards rationalizing the currently dysfunctional political system that holds back India in more ways than one. More such bold reforms are needed, with a special focus on consensus building, a quality the Modi government clearly lacks, to usher in a new era in Indian politics and decision – making.

The committee set up by the government to look into this issue, the report mentions, says that in order to align the elections in 2019, the tenure of some assemblies would have to be curtailed while of some others would have to be extended. This would require serious intent on the part of the political parties, not simply because it would require some of them to cut short their term in office, but also because such a move, if enacted, could potentially transform the way elections are fought in this country. Presently, all political parties go an a charm offensive with their respective vote base right before their elections to ensure a victory, offering them freebies and announcing huge projects, which are seldom implemented when they actually get into power. But, a trend has emerged in Indian politics since the Lok Sabha election of 2014, or perhaps since the Gujarat Election of 2012, where electorates have increasingly started voting for development, not just on the caste or communal lines as preferred by political parties and have constantly busted the anti-incumbency myth by re-electing those leaders who have a proven record of ‘good governance’. Thus, in order to capitalize on that trend, simultaneous national and state elections is imperative since such a move would go a long way in diverging national issues from state level problems, thereby nurturing the much needed democratic maturity in the Indian electorate, the lack of which up till now has allowed vested interests to take advantage of them. But, as mentioned earlier, this group of vested interests would do whatever is in their power to stop such a development and it must be the responsibility of the Modi government, which constantly makes loud claims about its integrity, to make sure that such an important reform does not indefinitely remain in political limbo.

Notwithstanding the above, there are many such reforms in the political system which are needed urgently to unshackle India from socio-economic adversities. Although, one would like to see a cap on spending in elections or stricter regulation of political parties at large, such reforms are unlikely to happen given that all parties, including AAP, have many skeletons in their closets. That being said, one would like to see reforms which seek to divide the functions of the legislature and the judiciary as explicitly as possible. I am talking, of course, about the need to restrict the powers accorded to the upper house of parliament and to clearly define the role of the judiciary which constantly enters executive domain, leading to mis-governance.

Now, Rajya Sabha, the upper house of parliament referred above, is a touchy subject, with the central government being accused of bypassing it through constant ordinances or by introducing money bills like Aadhar, which do not require approval from the upper house. While some might argue that the government is indeed trying to sidestep the Rajya Sabha, I would argue that it does not have any other choice. This is because Rajya Sabha is a collection of unelected individuals whose job is nothing but to forward their party’s shallow agenda which often goes against the country’s interests. Although, the government might not be able to push through reforms that would limit its powers, given its record, it can think about using the ongoing cash-for-vote controversy in the Rajya Sabha elections to its advantage and attempt to introduce reforms that makes the upper house more accountable to the people of the country. This can be done either by initiating a discussion on turning Rajya Sabha into a Senate like body where its members are directly elected or by at least mandating the cancellation of elections if any foul-play is found.

Another area of concern for the political establishment of the country is the judiciary’s constant intervention in executive functions. Be it the diesel ban in Delhi or the shifting of matches in IPL or the formation of a drought management fund, the judiciary’s constant overreach into executive domain disturbs the balance of powers and creates further disruptions in the already dysfunctional system. Its argument is that it if the government did its job better, it wouldn’t need to interfere. Hard to argue against that. But this was the same judiciary which struck down the National Judicial Appointments Commission (NJAC) which aimed at giving the executive more power in appointing judges to the courts on the ground that government intervention would impact the independence of the judiciary. So, while it does not want the executive interfering in its workings, it finds no problem in directing the government on how to go about its job. Now, whether that is constitutional or not is best left to experts; what we must first realize that the judiciary is not perfect, simple because it does to the government what the government does to us. Such a situation creates a lot of confusion between the so called ‘three pillars’ of democracy and ultimately, it is the country which stands to lose. Thus, judicial reforms are an urgent need and the government must come up with comprehensive reforms to address the problems associated with the judiciary. Also, such reforms invite rare bipartisan support and government doesn’t stand to lose any political capital by coming up with the same.

In conclusion, there is long way to go before India can shred the tag of being a ‘Banana Republic’. Aligning central and state elections is a huge stride forward. But this would require all political parties to come on the same page vis-a-vis holding 32 elections in 2019. One can wonder in-numerous reasons why all parties would not agree to that, not the least of which is the fear of another Modi Wave!